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NEW YORK (CNNMoney.com) -- U.S. stock futures pared earlier gains Friday after the government announced a surprise decline in employment and payrolls.

About one hour before the open, Nasdaq and S&P futures bounced of earlier highs, after rallying on news that Microsoft had offered an unsolicited bid for Internet search engine Yahoo.

The Labor Department's said Friday that U.S. payrolls in January were down 17,000 and unemployment fell to 4.9%. Economists surveyed by Briefing.com expect employers added a modest 70,000 jobs last month, versus the revised 82,000 jobs added in December. The unemployment rate is forecast to remain at 5%.

The payrolls report comes after weekly reading on jobless claims released Thursday jumped unexpectedly, rattling investors already worried about the slowing economy.

Early Friday morning, Microsoft made a cash and stock offer of $31 a share, representing a 62% premium to where Yahoo's shares closed Thursday.

Shares of Yahoo (YHOO, Fortune 500) jumped nearly 60% in pre-market trading following the announcement while Microsoft's (MSFT, Fortune 500) stock fell 2.6%.

Other economic reports due Friday include three readings after the opening bell. First will be the University of Michigan's updated survey on January consumer confidence, followed at 10 a.m. ET by the Institute of Supply Management's closely watched manufacturing index for January. The government reading on December construction spending also is due at 10 a.m. ET.

Wednesday brought a much weaker-than-expected gross domestic product report, although the ADP Employment Index, which charts private sector employment, posted a stronger- than-expected gain of 130,000 jobs, up from a gain of only 40,000 in December.

On the earnings front, Exxon Mobil (XOM, Fortune 500), the nation's No. 1 oil company and largest company by market value, reported the biggest quarterly and annual profit in U.S. corporate history.

Google (GOOG, Fortune 500) reported earnings late Thursday that fell a penny a share short of forecasts. Shares of the Internet bellwether lost as much as 9% in after-hours trading.

There was additional bad tech news from Ericsson, the world's largest provider of mobile networks, which reported a sharp drop in fourth-quarter profit Friday as it trimmed its outlook for telecom-equipment demand in 2008 to "flattish" from an earlier guidance of "mid-single-digit growth." It also announced it would cut 1,000 jobs in Sweden. Shares fell 3.7% in early trading in Stockholm.

Motorola (MOT, Fortune 500), the No. 1 U.S. maker of cell phones, said late Thursday it is considering the sale of its cell phone unit. Its shares surged nearly 11% in after-hours trading.

In other corporate news, Alcoa (AA, Fortune 500) and Chinese aluminum firm Chalco partnered up to buy a 12% stake in miner Rio Tinto. The move comes as Rio Tinto is thwarting a takeover approach from larger rival BHP Billiton. A tie-up between Rio (RTP) and BHP (BHP) would be one of the biggest corporate takeovers ever.

Automakers are also set to report January sales Friday. Sales tracker Edmunds.com forecasts a slow start to the year with industry wide U.S. sales off 3%. General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC are seen continuing to lose market share to import brands.

Oil prices fell on news that OPEC would keep production levels unchanged. A barrel of light sweet crude lost 49 cents to $91.26 a barrel in electronic trading.

In global trade, Asian stocks finished mostly higher, although Japan's Nikkei dipped. European stocks rallied in midday trading.